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First time running into a solar credit. Quick reading suggests a NON-refundable credit that will take tax liability down to zero but not lower. It can be carried over if not used up. But, client wants to use it up on their 2020 tax return, because they are financing it now and will need to pay it off next spring/summer.

I ran a quick pro forma using 2019 software. Refund increases dramatically.

Anyone work with the new W-4 yet? How easy is it to calculate a new W-4 that'll give them more take-home pay now to save for the time they have to pay off their solar installation?

I'm open to suggestions on helping them with tax planning.

And, I'm open to leads on reading more about a solar credit.

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Your take on the solar is correct.  Most solar sellers are misrepresenting the refund and using it to make their offer sound better.  Depending on your clients income they may get 100% of the credit used the first year, but in my client's cases it has been spread out over two.  Each time, the client is told and the contract written stating that the refund will go to principle, lowering the finance costs.

Not a big fan!

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9 minutes ago, Tax Prep by Deb said:

Your take on the solar is correct.  Most solar sellers are misrepresenting the refund and using it to make their offer sound better.  Depending on your clients income they may get 100% of the credit used the first year, but in my client's cases it has been spread out over two.  Each time, the client is told and the contract written stating that the refund will go to principle, lowering the finance costs.

Not a big fan!

My experience exactly.

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Thanx, Deb & JRS. It's my kids, of course. All the new things I have to read up on come from my family freebie returns! But, these kids did some of their own reading and ran some numbers and got multiple bids. They turned down solar at first. But, then they took down a couple of dead trees and thought they'd give it another look now that they have less shade on their roof. Sure enough, recent quotes use fewer solar panels so cost less. They're back considering it seriously. SIL is taking a pay cut for the rest of the year due to Covid-19. They're both working from home due to the virus and also are considering A/C. I'm talking to them Tuesday. Probably help them lower current w/h.

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I had a client several years ago who got sucked into a solar credit deal.   The salesman convinced them that they would get the entire credit the first year.   Bought a 70K system and were looking for a huge refund check.  Their average tax liability at the time was about 2K, covered by withholding and child tax credits.   After I showed them the IRS rules, they figured out that they had been "manipulated" by the salesman, but of course it was too late.   We had them change their federal withholding to exempt and it took about 8 years to work off the entire credit.  I think we finally used it up on the 2018 return.

Tom
Modesto, CA

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This has all been very helpful.

Both of them work, so their tax liability is enough to use up the solar credit in one year. Their system will cost under $29,000, and the kids calculated their 2020 credit at under $7,000. They do have one child and the CTC. He hasn't been at daycare very much this year, but will return by July, so a small CCC. I ran a pro forma return.

My challenge now is to help him reduce his w/h so they get more now instead of a huge refund next year. Although, with current interest rates and short-term investment opportunities, maybe it doesn't matter!

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  • 3 months later...
On 6/24/2020 at 7:04 AM, Lion EA said:

This has all been very helpful.

Both of them work, so their tax liability is enough to use up the solar credit in one year. Their system will cost under $29,000, and the kids calculated their 2020 credit at under $7,000. They do have one child and the CTC. He hasn't been at daycare very much this year, but will return by July, so a small CCC. I ran a pro forma return.

My challenge now is to help him reduce his w/h so they get more now instead of a huge refund next year. Although, with current interest rates and short-term investment opportunities, maybe it doesn't matter!

Solar Panels are a fail in almost every context I looked at, though Businesses can turn them into only a small fail in JUST the right scenario.

Washington also offers a state incentive (reduced or eliminated if system is over 12kwh and is a reduced incentive amount the longer you put off installation) that pays per watt.

Washington also encourages but doesn't require the utilities to refund the production.... what isn't told to you, is they credit your account, which does not roll over in February (the months you actually need to use it).

 

If you figure the following in, it doesn't look that great. My numbers might not be great, but it doesn't make sense to me. If they can put it on a Sch C business where you use the electricity produced during the day and can take Bonus, it improves slightly... but not by much. I tried telling an engineer this once. Of course they knew better.

 

Interest on the loan taken to get the panels installed (2 year repayment at 4.5%)

Repairs for a warrantied product where the installing business no longer exists to replace

Foregone investment (if they put $30k into the market for 20 years at an average rate of return of 6%)

image.png.76f3d27eed8c9311a774de09f4c45b17.png

 

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Thanx, Matthew.

I know "the kids" got new bids after taking down dead trees, but I don't know what they are. They would have an interest-free loan for 18 months (or two years?) and are budgeting to pay it off in time. They did talk to friends in their general area, and claim repairs & maintenance are negligible. Their top three installation candidates are all long-time area companies owned by multiple electricians. They don't have $30k to put into the market at this time, so are not missing out on any investment income. Their electric bills have been much higher this year with the hot, humid summer plus both working from home plus their first full year with a baby. SIL's an engineer and stepdaughter was a math major working for a not-for-profit who plans their international conferences, so they did run numbers, set up spreadsheets, etc., that led them to turn down solar before dead trees came down and to re-explore solar now that their roof gets more sunshine. They investigated any CT rebates themselves, so I don't know what they discovered.

So, with Interest $0, and no investments other than their 401(k), 403(b), and 529, and no CT credit that I know of, and even keeping the $5,000 for repairs in your numbers. Plus their 20-year energy savings would be about $60,000, not accounting for inflation; but they say this is their forever home, at least until all their children graduate college and move away from home (maybe by 2050 or so). So, the Cost is then $35,454 in their favor after ten years.

Because of a divorce, they have three sets of parents telling them what to do! So, I try to stick to taxes. My biggest issue was the new W-4 and helping them reduce w/h to have more in their pockets this year, if they are expecting a solar credit next year or the year after. But, SIL was very reluctant to change his withholding. I fed them numbers and tried not to say what I would do (we do not have solar; we did add a whole-house generator due to hurricanes; we keep our w/h very low) and will smile and tell them they did good when this pandemic ends and we can visit them and see that they do or do not have solar panels on their roof.

Thank you, everyone, for helping me work through this for my kids.

PS: Talking to friends my age who are selling and downsizing, solar does seem to increase the resale value of homes in this area with high electric costs. Not that the kids expect that to be an issue for them in the near future.

 

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Good perspective! Being new parents working from home most of this year, I can attest it's nice that my in-laws are happy to visit and babysit but very respectful of our space. I'd say we spend more time with them because of their respect than the alternative!

 

I'm a little lost on the investment piece since they have to pay the money for the solar panel investment somehow. The return on investment is what kills it for me. Everyone finds value in different places though... such as my fishing and camping hobby. Let's not talk about that though 🙂

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They have decided that now that they've invested in their first house together (they lived in a house the H bought before they were married that met his needs at that time) and will be there for some time and both are maxing out their 401(k) and 403(b) with matches at work and started a 529 for their 1-year-old (plus H has IBM stock from his parents' days at that firm) that their next investment should be in solar. They see that as a good return on their money based on the high electricity costs in their area, and spent time developing scenarios. (H rebuilds and races cars for a hobby, dating back long before the marriage. So, I think they want to invest in something that improves the house for all three of them, something more tangible than paper investments -- at least, that's how I see them acting!)

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I put in solar last year but paid cash; otherwise it would have taken years to use up the credit. Bills are now the fees I can’t get around since every month the solar has generated more than we’ve used. I sold a property to get the cash, so I still owed tax for 2019, boo!  
part of what I was looking to get out of it was peace of mind; I don’t care how much electricity I use now since I’m generating it myself. 

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